I have an interview coming up with a very small hedge fund. What are some of the key questions I need to be asking about the fund and what should be my expectation for the type of role I would be playing in the fund given my background. I really havent been told much about the role, just that they find my background appearling.
A little about me, I have about 7 years total work experience in accounting, valuation of intangibles and capital regulation in an investment bank, and financial reporting. Currently on L3 of CFA.
For more background on the fund, it has about $400mm AUM, less than 10 total investors, and is about a 12 man shop. Any advice would be greatly appreciated.
You need to justify why you want to work at a relatively small company. While the upside might be high if they grow, the risks are also more significant compared to those of working for a larger company.
Also, since they only have 12 people, they might not have anyone to train you in the job. You must show that you understand the role and have ideas on how to grow and enhance the position. So, ask some questions like “how do you currently do X”, “have you considered this other method”, etc. Obviously, you should do as much research as possible before the interview.
$400mm is not a “very small hedge fund” – very small is under $50. At $100mm you have to file a 13F which makes you at least “sort of legit” and $400 is way past that. Also, at the industry standard of 1.5-2% management fees, that is $6-8mm as an operating budget.
A 12 person team is fairly large for a hedge fund as well.
For reference, I worked at a $300mm shop that had 6 people total and the founder more than once made $100mm while I was there. The situation with that fund was different because it was mostly (and at one point entirely) his own capital. But there are lots of good funds where you (or someone) can make a lot of money that are under $500mm of assets – in fact, a number of strategies don’t even scale beyond $500mm.
I actually don’t think hedge funds should be over $1B unless you are doing something very liquid like debt or macro. Equity funds that are that big are asking for mediocrity, might as well just invest in a mutual fund ahd lock in your underperformance at that point.
Pros:
You usually have a more flexible mandate at a small fund – not buying efficiently price large caps, etc.
You will probably get more hands on experience with broader exposure to different areas of the business
You can probably grow faster with the fund if it does well
Cons:
Small funds are typically more fragile depending on the capital base and who is invested
The comp is lower than at a big fund
May be less sophisticated with worse infrastructure (not necessarily true)
IMO your questions should focus around the lock up period, who the investors are, how stable the capital is, etc. It could be a good opportunity to break into the hedge fund business if that’s what you want to do long-term. Hedge funds are still probably the best area in finance long-term if you want to make a lot of money and be your own boss.
Yeah, I would agree that $400 million is not really small in AUM for hedge funds. However, assuming OP is coming from a big company, the culture change to a 12 person firm can be quite significant. There might be some opportunities to proactively address personality fit during the interview, in addition to business stuff as mentioned above.
This is true, the personality fit is key for any small office, but especially when you will be spending 12 hours a day with these people. It’s likely that without buyside experience, anyone stepping in will have a pretty steep learning curve, which makes the personality fit even more important for both sides.
thanks alot guys for the advice. Really appreciate it. Yes, I have only worked at very large companies where bureaucracy reigned supreme.
And for further clarification, they are actually a $300mm AUM global macro fund. Just looked at their latest filing. Anyway, as you mentioned, it could be a great opportunity to get into the industry but doing the necessary due dilligence is going to be my priority for now before jumping into the unknown.
Agreed, the interview will focus a lot on personality fit. Don’t be suprised if throughout the process you sit and meet with all 12 people.
That being said, do you have any more info about the role? Is it on the trading desk, in ops, research, control?
From your background it sounds like you would fit in a control group, doing PnL generation, valuations, margin analysis/management… stuff like that.
Without much info other than its a global macro shop and not knowing the capacity in which you would be working there, there a million generic quiestions you can ask to start the conversation going… hopefully one of the answers will touch on existing experince you have…
What products do you typically trade? In what currencies do they focus? Trade Volumes? Average position turnover? Who do they PB with? Who is their Fund Admin? Who are their top 5 counterparties? Do they outsource any operations/accounting functionality? What is thier target leverage ratio? What is their target Unencumbered Cash? How did the fund originate? Who is the ideal investor (individual/pension/endowment/fund of fund/managed accounts) for their fund? What is the growth rate of capital contribtuions? What is the history of redemptions? Up to what AUM can the current trading strategies support? Do they see the office growing in relation to AUM or are the current processess scaleable?
bump, hey everyone the interview is next week and it appears I will be speaking with the head of risk. Can anyone recommend any global macro newsletters or books I can glance at over the weekend?
Review the portfolio risk management topics near the end of your L3 books. It’s a good summary of many basic topics that you will want to be familiar with.